Standard Deduction: Bigger and Here to Stay

The bill proposes a temporary increase of $1,000 for single filers (bringing it to $16,000) and $2,000 for married couples filing jointly (bringing it to $32,000) for tax years 2025 through 2028. These amounts are then indexed for inflation starting in 2029

Child Tax Credit: Temporary Relief, Long-Term Inflation Protection

The credit is temporarily increased to $2,500 per child for tax years 2025 through 2028. Starting in 2029, it reverts to $2,000 and will be indexed for inflation thereafter.

Tax Brackets: A CPI Switch to Prevent “Bracket Creep”

To ensure federal tax brackets keep pace with inflation, the bill proposes replacing the current chained Consumer Price Index (CPI) adjustment with the traditional CPI method. This change could slow the rate at which taxpayers are pushed into higher tax brackets due to inflation, helping prevent hidden tax hikes.

Estate and Gift Taxes: Higher and Indexed Exemptions

The exemption is set at $15 million per individual ($30 million for married couples) beginning in 2026, with adjustments for inflation in subsequent years.

Business Provisions: Pass-Through and Corporate Cuts Extended

The deduction for qualified pass-through business income is increased from 20% to 23% and made permanent.

SALT Cap Relief: Tripled for Itemizers

The proposed legislation also triples the State and Local Tax (SALT) deduction cap from $10,000 to $40,000. This change primarily benefits taxpayers in high-tax states who itemize deductions and would offer significant relief to homeowners and higher earners.

The Trade-Offs: Benefits vs. Deficits

While the bill provides financial benefits across multiple income brackets and sectors. The Joint Committee on Taxation estimates that the bill would increase federal borrowing by $3.7 trillion over the fiscal year 2025–2034 budget window. Critics warn that this revenue loss could necessitate cuts to federal programs such as Medicaid or clean energy initiatives and raise concerns over long-term national debt levels. Furthermore, low-income families who don’t qualify for the child tax credit may see limited benefit.

Final Thoughts

Aaron concluded the presentation by inviting feedback on the bill, noting that its success depends not only on policy outcomes but also on public understanding of its implications. He also dealt with some humorous technical issues during the presentation, including a flickering battery-powered light and a mystery barking dog in the background.

This tax bill is poised to play a central role in the fiscal debates leading up to the 2025 expiration of key provisions, and its passage could reshape the tax landscape for years to come.

All writings are for educational and entertainment purposes only and does not provide investment or financial advice of any kind.

The post GOP Unveils Sweeping Tax Reform Bill Ahead of 2025 Expiration Deadline appeared first on ROI TV.

Tax Filing and New Changes for 2025

The IRS has announced that the 2025 tax filing season will commence on January 27, 2025.

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The standard deduction has increased to $15,000 for single filers and $30,000 for married couples filing jointly.

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Additionally, there have been minor adjustments to the tax brackets to account for inflation.

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Understanding how taxable income is calculated within these brackets is crucial. The U.S. tax system is progressive, meaning income is taxed at different rates as it moves through the brackets—a concept often referred to as the “stair-step” method.

Strategies to Reduce Tax Bills

Effective tax planning is a year-round endeavor. To minimize your tax liability, consider implementing strategies such as maximizing contributions to retirement accounts like 401(k)s and IRAs. Charitable planning, including the use of Donor Advised Funds, can also provide significant tax benefits.

Charitable Planning and Donor Advised Funds

“Bunching” charitable contributions is a strategy where you combine multiple years’ worth of donations into a single year to exceed the standard deduction threshold, allowing for itemization and greater tax benefits. Donor Advised Funds facilitate this approach by enabling you to make a large initial contribution, receive the tax deduction in that year, and distribute funds to charities over time.

Long-Term Tax Savings Strategies

Consider Roth conversions to transfer assets from tax-deferred accounts to tax-free Roth accounts, potentially reducing future tax liabilities. Asset location—strategically placing investments in taxable, tax-deferred, or tax-free accounts—can optimize tax efficiency. Additionally, tax-loss harvesting allows you to offset capital gains with losses, further reducing your tax burden.

Retirement Plan Options for Business Owners

If you’re a business owner, explore retirement plan options such as SEP IRAs, SIMPLE IRAs, 401(k)s, and Defined Benefit Plans. Each plan has distinct advantages and considerations, and selecting the right one depends on your business’s specific circumstances. Initiating retirement planning early in the year can maximize contributions and associated tax benefits.

Tax Planning for Real Estate Investors

Real estate investors should be aware of the limitations on deducting passive losses, which are often contingent on income levels. Attaining Real Estate Professional status can provide more favorable tax treatment. Strategies like cost segregation studies and 1031 exchanges can defer taxes and enhance the profitability of your real estate investments.

Tax Implications of Cryptocurrency Payments

Receiving payments in cryptocurrency is considered taxable income and must be reported accordingly. Additionally, spending cryptocurrency can trigger taxable events, as it’s treated as property by the IRS. It’s essential to maintain thorough records of all cryptocurrency transactions to ensure accurate reporting.

Conclusion

Staying informed and proactive is key to effective tax planning and retirement preparation. Remember, early and strategic planning can significantly reduce your tax liabilities and enhance your financial well-being.

Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.

IMPORTANT DISCLOSURES:

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.

• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.

• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.

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